First let’s give some examples of what average general contractor’s contracts might look like:
Base payment on a $5 million construction project…10% for the contractor’s labor, 20% for the project owner’s improvement materials and 20% for taxes.
Or on a $100,000 improvement project…10% for the contractor’s labor, 20% for the project owner’s improvement materials and 20% for taxes.
Most of the businesses you’ll talk to on building sites won’t pay you much at all for your labor on a project of that size, and some businesses (like those doing residential renovations) may pay a bit of a bonus for coming up with materials.
Then there are different materials to factor in—stone or carpet and things like wood versus laminate are often in there.
Let’s see what an average general contractor may have to pay you for a $10,000 project…on average $375 per hour and $10 per square foot…that’s like 3,500 an hour for a general contractor who’s willing to work out of his home on a project like that…pretty amazing.
Or let’s compare what a general contractor might charge for an improvement project on a new home versus one on an older home:
New home…10% of the labor and 20% of the construction material…10% for the homeowner’s improvement materials…10% for taxes…20% of the total project cost (building materials, labor, tax dollars, etc)…10% of the construction material costs for a home that was built in 2003 or later…10% for a home that was built in 1999 or later.
Ouch. That means the cost of a general contractor to do a $10,000 improvement project on a home built in 2002 or later is less than $1,300.
But a general contractor who’s willing to take on that project can only expect $1,350 on the work…just 4% more than a general contractor who’s willing to do a $10,000 improvement on a new home built in 2003 or later.
Overall, the cost of a general contractor’s services tend to fluctuate around the 10-20% range in general and that’s probably pretty accurate.
But if you’re working with an average general contractor, you’ll probably find that he’s willing to do a project on a newer home that’s been remodeled. But he’ll charge you more for improvements on an older home.
What does your home renovation cost?
You’ve probably heard a lot of these estimates and probably a lot of them are pretty high.
Some of the estimates are ballpark, and those are pretty accurate. Some of the estimates come from estimates done by contractors who say they’ll have to charge more than they should. Because they have to charge a high amount. Because they’re the only contractor in town or they’re making a lot of money working out of their home. And those are reasonable estimates (for that contractor).
But some estimates…well, they’re not reasonable at all.
Those estimates are usually given to prospective clients by realtors who know they’re going to do a lot of remodeling. And they’re going to get the lion’s share of those clients. In a lot of cases these estimates are 50% to 70% higher than the prices of homes they own.
In a lot of ways, real estate brokers and realtors are getting away with lying to potential clients about what home improvement projects will cost—and what their real costs are—with the system of real estate contracts.
But you may also be buying the ability to work with the general contractor. Because real estate brokers will usually go through the homeowners first and provide some kind of estimate. Which has to be approved by the homeowner. Which then gets passed along to the general contractor (who says it’s going to cost him more than that).
That means your general contractor has a couple of options. They can give you a real good estimate and take your money. Or they can give you a lower price for the project. Which is more likely to give you more work in the future. Or less work in the future (depending on the cost to you).
So for a general contractor to go ahead and give you a good estimate without knowing if you’re going to be able to afford the project. Or the price to do the project—is unethical, but a good thing for you.
To give you a good general contractor estimate, a general contractor would have to spend some time and some money. Spend some money and go get a couple of estimates for you. So that he can give you the best estimate. If he’s being honest with his real costs. And the best estimate for you means that the cost to you will probably be more expensive. Than it would be if you worked with a general contractor who doesn’t care what your budget is.
The cost to you may not be $5,000 for a big-ticket home improvement project. But it may be a lot more than $500.
If you’re working with an average general contractor, that cost will probably be $3,500…and that’s just with the labor. If you’re working with a very good general contractor. And that’s the scenario that most realtors and realtors who sell properties want you to work in. That cost will probably be $8,000, and that’s probably a reasonable estimate. Because most contractors charge a lot less for big-ticket projects. Like remodeling your home than they charge for small projects. Like the sprinkler system that’s already on your house.